Despite the “fiscal cliff” deal approved by President Obama and Congress to extend most of the Bush-era tax cuts for individuals making less than $400,000 and married couples making less than $450,000, the majority of wage earners in the country will see smaller paychecks in the coming year due to an increase in federal payroll taxes caused by the elimination of the payroll tax cut holiday.
According to analysis by the Tax Policy Center, a nonpartisan Washington D.C. research group, 77 percent of American households will face higher federal taxes in 2013, with the average U.S. worker in paying $679 more in taxes this year.
Although the “fiscal cliff” deal protects an estimated 99 percent of Americans from an income tax increase – and only 1 percent of households will pay higher income taxes – the increase in federal payroll taxes will affect nearly every wage earner.
The Tax Policy Center estimates individuals earning between $40,000 and $50,000 a year will face an average tax increase of $579 in 2013 while households making between $50,000 and $75,000 a year will face an average tax increase of $822. Members of the top 1 percent of earners will pay $73,633 more taxes on average.
The payroll tax cut holiday, which was in effect for two years from 2011 to 2012 and saved a typical family approximately $1,000 a year, reduced the Social Security tax rate paid by workers paid by 2 percent down to 4.2 percent. The resumption of the regular rate of 6.2 percent will mean smaller paychecks in 2013 for most Americans.
For more information, visit http://taxpolicycenter.org/numbers/Content/PDF/T12-0429.pdf.